My question is, what is MC doing during the sync that takes so much CPU? Since LAME is doing the heavy lifting in the encoding I can't imagine what MC is doing. The main reason I ask is that is MC is doing unnecessary stuff then LAME would be able to use those resources and run that much faster.
During a transfer, the handheld engine runs everything it can concurrently.
Even during conversion, MC needs to decode the existing files, feed the data to the encoders, and save the output data. This is all in the Media Center process.
MC is also sending the actual file to the device as each conversion finishes, which takes resources.
Showing status, making speed estimates, etc. also takes resources, but a tiny amount relative to everything else that's happening.
The handheld engine is quite optimized, and should be especially strong on a multi-core system.